Oil speculation theory taken to the woodshed6/19/2008 2:04:59 PM |
Gabrielgray
F. W. Engdahl: Shrewd investigator or rabble-rousing con man?
Editor’s note: The following piece by gabrielgray was written in response to F. William Engdahl’s article, “Perhaps 60% of today’s oil price is pure speculation.” See Engdahl’s original article here.
Beyond wasting some time at Princeton, Engdahl apparently has no credentials at all in the realms he tackles. His books are not scientific in their approach, consisting of sheaves of unsubstantiated charges and guilt-by-associations all patched together into dark conspiracy tales for the "His Holiness Obama Will Save Us" crowd. Documentation and footnoting are extremely sparse, and there is a major amount of "an analyst said..." and "Paul Ehrlich charged..." It doesn't get any lamer than this.
In my opinion, Engdahl's article is a tour de force of disingenuous disinformation. In the interest of time, I'll just pick out a few of the more egregious statements and apply the pooper-scooper.
He refers to a Senate report that says energy trading was "heavily regulated" under the "extensive oversight of the CFTC."
Pathetic. The CFTC never, ever finds manipulation in futures trading. The CFTC "enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation." Somehow, the sensitive manipulation detectors at the CFTC haven't sniffed a hint of manipulation in the fact that a handful of silver traders have sold short the majority of world silver production.
He charges Nymex with conspiring with ICE to shift energy trading to unregulated London markets. But Nymex went to court two years ago to force ICE to report by Nymex standards and use Nymex mark to market. (See link:
ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcT1BOXDA1LTU1OD
UtY3Zfb3BuLnBkZg==/05-5585-cv_opn.pdf)
He claims that 60% of the current oil price is pure speculation, but he never mentions geopolitical risk or dollar inflation in the formula. The idea that ending futures speculation in oil would take WTI back to $50 would be funny if it weren't so sad.
After fingering fast-money speculators as the culprit, Engdahl stumbles blindly over a real cause, but dusts himself off and wanders away unenlightened. He says that financial speculators, including pension funds, have rammed big capital into markets designed for hedging, and driven prices skyward. Pension funds are guilty as charged, but they are not speculators, and they are not fast money. Huge pension funds like CalPERS have indeed sought better returns in commodities by buying commodity indexes. That's because their stock, bond and derivative positions are in the crapper and they have to do something to salvage the 8% annual return necessary to maintain actuarial viability. They're going to get burned in commodities, too.
Finally, Engdahl resorts to outright lying: "over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years."
Fact Check: As of January 2008, U.S. crude oil inventories stood at 282 million barrels, the lowest figure since October 2004. (See link: tonto.eia.doe.gov
How does Engdahl support his fraud? He includes paper oil contracts and the SPR (Strategic Petroleum Reserve). The SPR is not for everyday market supply; it's for the day when everyone realizes that Engdahl is a hack writer and a doofus. When foreign oil stops flowing, the SPR will last the U.S. about 30 days and everyone will be wishing that the idiot Bush had made it a heck of a lot bigger, like China is doing with theirs.
How about this one? "In the past couple of years, global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy."
Well, hot damn. You'd better pray that global supplies keep exceeding demand, because on the day that situation changes, a new world war begins.
And there's more: "The EIA recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010". That's a minor fraction of U.S. consumption alone, at almost 21 million bbl/day. Add in another 40 million bbs a day from the next 16 consuming nations, and consider that China alone will account for at least 2 to 3 million barrels of additional consumption each year for the foreseeable future, and Engdahl's thesis looks utterly absurd. nationmaster.com
Engdahl charges that the Iraq war was instigated by George Bush to secure the nation as a huge test field for Monsanto Corporation's genetically modified seed varieties. You think I'm making this up?
engdahl.oilgeopolitics.net
_and_seeds_of_democracy.HTM
Engdahl appears to be a writer of sensationalistic fiction, sort of a Da Vinci Code for global conspiracy mongers. Check out his recent theses:
Engdahl now believes in the Russian hypothesis that oil is not a ‘fossil fuel’ but is produced underground by unknown materials, conditions and forces deeper down in the Earth's core. He calls himself an ‘ex peak oil believer.’ In an unbelievably tendentious piece of Luddite disinformation, he proposes that the U.S. oil majors are so uninterested in adding to their reserves that they cling to their useless geo-seismology when they could be dowsing for dollars like the Russians.
He neglects to mention that Russia has relied on technology from RDShell, Exxon-Mobil and other western oilcos to find the oil and gas they're currently developing.
If it comes down to betting the future of our civilization on a theory that oil is a product of vast hydrocarbon breeders bubbling away at the earth's core, I think I'll take my chances on getting screwed by the likes of Rex Tillerson and T. Boone Pickens. At least I can run my truck on their overpriced, pension-fund-juiced products.
Engdahl believes "the 1973 OPEC ‘oil shock’ and the accompanying oil ‘shortage’ were secretly planned by the highest levels of the US and British elites, with Henry Kissinger playing a key role." Yeah, the Arab Oil Embargo never happened, and it had nothing to do with U.S. support of Israel.
Engdahl charged that Avian Flu is nothing more than a Pentagon-sponsored scheme to make Defense Secretary Rumsfeld rich beyond his wildest dreams. In short, it's a hoax. For proof, he offers nothing more than a handful of undocumented allegations and a few very weak circumstantial associations.
It's significant that Engdahl is taken seriously mainly on sites such as democraticunderground.com. Moonbats need little in the way of documentation.
This article was written by a member of the Stockhouse community.
ABOUT THE AUTHOR
Gabrielgray
Gabrielgray has no hedge fund experience, has never worked on Wall Street, and holds no degrees in economics. He lives in the Blue Ridge Mountains, but parks his economic philosophy in Austria, between Hayek and von Mises. Gabriel regards Wall Street with deep suspicion, and lives for the day when the Federal Reserve is a private park where rich Europeans go to hunt former monetary officers. His investment education began at the market peak in early 2000, and continues to this day. Gabrielgray has a wife and three adult children, all of whom still speak to him.
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